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Federated (FHI) Q1 Earnings Miss Estimates, AUM Increases

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Federated Hermes (FHI - Free Report) reported first-quarter 2021 earnings per share of 75 cents, lagging the Zacks Consensus Estimate of 77 cents. The figure, however, compared favorably with the prior-year quarter earnings of 63 cents.

Controlled expenses and improved assets under management (AUM) were driving factors. Also, the company’s debt position improved. Yet, voluntary fee waivers and lower revenues were deterrents.

Net income was $74.5 million compared with the year-ago quarter’s $64.2 million.

Revenues & Costs Decline, AUM Up

First-quarter total revenues declined 5% year over year to $341.2 million. Moreover, the top line missed the Zacks Consensus Estimate of $348.2 million. This downside mainly stemmed from voluntary fee waivers associated with certain money market funds, in order for those funds to maintain positive or zero net yields.

Also, net investment advisory fees jumped 3% year over year to $247.7 million. In addition, administrative service fees grew 3% to $74.3 million. However, net service fees (other) plummeted 59% to $19.2 million.

During the March-ended quarter, Federated derived 24% of its revenues from money-market assets, 49% from equity, 16% from fixed-income assets, 10% from alternative/private markets and multi asset, and the remaining 1% from sources other than managed assets.

The company recorded non-operating income of $1.87 million in the reported quarter against expenses of $7.04 million in the prior-year quarter.

Total operating expenses slipped 9% year over year to $243.7 million. Lower distribution and travel expenses, advertising and promotional, along with reduced office and occupancy costs, mainly resulted in this decline. These decreases were partly negated by higher compensation and professional service fees, systems and communications, along with other expenses.

Asset Position Steady

As of Mar 31, 2021, total AUM came in at a record $625 billion — up 3% year over year. Average managed assets summed $618.1 billion, up 7%.

Federated witnessed money-market assets of $419.1 billion, down 7% from the year-ago period. Further, fixed-income assets were up 34% to $86.5 billion.

Record equity assets of $96.2 billion rose 41% year over year. In addition, alternative market assets increased 7% to $19.3 billion.

As of Mar 31, 2021, cash and other investments were $382.7 million and total long-term debt was $70 million compared with $438.8 million and $75 million, respectively, as of Dec 31, 2020.

Capital Deployment Update

During the first quarter, Federated repurchased more than 1.5 million shares of Federated class B common stock for $45 million. Notably, the company announced a new share repurchase program, which is the firm's 13th repurchase program and allows Federated to repurchase up to 4 million additional shares of class B common stock in the open market with no expiration date.

Our Viewpoint

Federated displays substantial growth potential, supported by its diverse asset and product mix as well as a solid liquidity position. Apart from this, acquisitions are anticipated to be beneficial for the company. Though uncertain markets pose a concern, rising assets and prudent cost management will likely aid its bottom-line performance.

 

Federated Hermes, Inc. Price, Consensus and EPS Surprise

Federated Hermes, Inc. Price, Consensus and EPS Surprise

Federated Hermes, Inc. price-consensus-eps-surprise-chart | Federated Hermes, Inc. Quote

 

Currently, Federated carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Investment Managers

T. Rowe Price (TROW - Free Report) reported first-quarter 2021 adjusted earnings per share of $3.01, which outpaced the Zacks Consensus Estimate of $2.92. The reported figure also climbed 61% year over year.

Artisan Partners Asset Management (APAM - Free Report) first-quarter 2021 adjusted earnings came in at $1.13 per share, surpassing the Zacks Consensus Estimate of $1.10. Also, the bottom line was 71% higher than the year-ago quarter figure.

Invesco’s (IVZ - Free Report) first-quarter 2021 adjusted earnings of 68 cents per share surpassed the Zacks Consensus Estimate of 62 cents. Also, the bottom line grew 100% from the prior-year quarter.

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